PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
May 3, 2005
The Honorable John Garamendi
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as Union Fidelity Life or the Company.
This report is made available for public inspection and is published on the California Department of Insurance web site ( www.insurance.ca.gov) pursuant to California Insurance Code section 12938.
The examiners reviewed files drawn from the category of Closed Claims for the period July 1, 2002 through June 30, 2003, commonly referred to as the "review period". The examiners reviewed 149 Union Fidelity Life claim files. The examiners cited 44 claims handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 within the scope of this report. Further details with respect to the files reviewed and alleged violations are provided in the following tables and summaries.
1. The Company failed to provide the written basis for the denial of the claim. In 17 instances, the Company failed to provide the written basis for the denial of the claim. Specifically, the Company's Explanation of Benefits does not refer to the policy provision that supports a partial or full denial of the claim. The Department alleges these acts are in violation of CCR §2695.7(b)(1).
Summary of Company Response: Union Fidelity Life will modify its Explanation of Benefits to include the following statement: "Benefits were processed in accordance with the provisions, conditions or exclusions contained in your policy. Please refer to these sections for covered services or benefit limits." The Company will specify the section of the policy appropriate to the denial of the claim.
2. The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In nine instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. In seven of the instances, the Department alleges an inconsistency in the Company's adherence to its procedure for payment of the Return of Premium Benefit within the Group Specified Disease category. The Return of Premium Benefit Rider allows a return of 10 years of premium following the certificate's tenth anniversary when specified conditions are met. In these specific instances, the Company's payment of the return premium varied between 21 days to 448 days following the trigger date in the tenth year. In the two remaining instances, the Company failed to refund the unearned premium to which a beneficiary is entitled under the provisions of the Group Credit Life policy. The Department alleges these acts are in violation of CIC §790.03 (h)(5).
Summary of Company Response: In response to the allegation of inconsistency, the Company explains its procedure: "The Company uses an on-line Excel spreadsheet that lists all policies with a Return of Premium Benefit Rider. These policies are listed in order of the effective date and are reviewed on the anniversary in which a Return of Premium Benefit (ROP) payment may be due. If the policy is excluded from payment but will again be potentially due, this policy number is placed into another spreadsheet (with the new ROP anniversary date) and will then be reviewed on the subsequent anniversary date for each potential payment. [For future compliance] a member of the Model Office reviews and audits the Excel spreadsheets to ensure accuracy of data collected as well as timely payment and processing of the Return of Premium products."
With regard to the second issue, the Company agrees that it failed to refund the unearned premium in two instances. The Company has refunded the unearned premium to each of the two claimants and has completed a three-year internal survey of Group Credit Life California claims closed during the period July 1, 2001 through June 30, 2003. The purpose of the survey was to identify other California claims in which a refund of unearned premium may have been overlooked at the time of settlement. The Company reimbursed the named beneficiary in claims found in the amount of $208.03. Furthermore, to ensure future compliance, the Company has adopted the following remedial measures:
1. Upon the Company's receipt of any California death claim, an unearned premium refund is requested in writing by the Claims Department directly. Prior to the implementation of this procedure, the Company had relied upon a refund request from the insured's creditor.
2. The refund of unearned premium has been added to internal audit procedures.
3. The Company failed to record claim data in the file. In five instances, the Company failed to record the date the Company received every relevant document in the file. Specifically in these instances, the Company failed to record the date it received the dental claim form. The Department alleges these acts are in violation of CCR §2695.3(b)(2).
Summary of Company Response: The Company's standard procedure is to date stamp all incoming correspondence. The Company will issue a training memorandum indicating the importance of using the date-stamp on all correspondence and claim forms.
4. The Company failed to advise the claimant that he or she may have the claim denial reviewed by the California Department of Insurance. In four instances, the Company failed to include a statement in its claim denial that, if the claimant believes the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance. The Department alleges these acts are in violation of CCR §2695.7(b)(3).
Summary of Company Response: The Company agrees that in these instances, it inadvertently omitted the required reference to the California Department of Insurance. The Company's procedure is to reference the California Department of Insurance on every denial. The required information is automatically printed on the Explanation of Benefits. The Company reiterated its procedure to include the proper denial language in customized denial letters. To ensure compliance, the Company will review this process with its Claim Associates.
5. The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In four instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. In two instances, one in Group Credit Disability and the other in Individual Life, the Company failed to follow up on outstanding issues in order that the claim could be moved to a conclusion. In the two remaining instances, the Company placed the burden of investigation upon the insured. Specifically, in the Group Health category, the Company directed the insured to obtain medical records on behalf of the Company. The Department alleges these acts are in violation of CIC §790.03 (h)(3).
Summary of Company Response: The Company agrees that two delays in processing occurred but disagrees in one of the instances that the error was committed with such frequency as to indicate a general business practice. Nonetheless, the manager of the Group Credit staff has discussed the circumstances of the impacted claim with the Credit Examiner Staff in September 2003 in order to readdress processing guidelines and the importance of timely follow-up. Additionally, timeliness in investigation and processing, as well as the requirement of sharing periodic status with the insured is formally addressed, annually, by way of a California Fair Claims Practices Course, the completion of which is a job requirement.
With regard to the second issue, the Company agrees that it placed the burden of investigation on the insured in error. The Company's investigative procedure is to obtain the required information by sending an authorization to the attending physician or hospital directly. The Company will follow up with additional training on this issue.
6. The Company failed to properly document claim files. In two instances, the Company's files failed to contain all documents, notes and work papers. Specifically, the Company failed to retain copies of all dental claim forms. The Department alleges these acts are in violation of CCR §2695.3(a).
Summary of Company Response: It is the Company's procedure to retain all claim forms. The Company will issue a training memorandum indicating the importance of retaining any and all documents pertaining to any claim.
7. The Company failed to maintain a copy of the certification required by CCR §2695.6(b)(1), (2) or (3) at the principal place of business. In two instances, the Company failed to maintain a copy of the certification required by §2695.6(b)(1), (2) or (3) at the principal place of business. The Department alleges these acts are in violation of CCR §2695.6(b)(4)
Summary of Company Response: The Company agrees that it failed to maintain the annual certification for the claim years 2001 and 2002. Following the completion of the annual training in the California Fair Claims Settlement Practices study course by each Claim Associate, the Company will prepare and maintain the annual certification to this effect on or before September 1 of each calendar year.
8. The Company failed to respond to communications within 15 calendar days. In one instance, the Company failed to respond to communications within 15 calendar days. The Department alleges this act is in violation of CCR §2695.5(b).
Summary of Company Response: The Company's policy is to acknowledge all communication from claimants within 14 calendar days and states that processes are in place to ensure this procedure is followed. The error noted is an oversight. Claim Associates are being reminded of this process.
